By: Russ Colbert
Summer 2021 (Vol. 39, No. 2)
The months continue to go by as many consumers rely on the stimulus payments, loose monetary policy, along with the re-opening of the economy, causing the increase in real GDP as we go forward through the year. We believe that real GDP will come in around 6.5% or better for the 2nd quarter annualized rate. Remember that much of the recent growth that we have seen is caused by the stimulus low interest rates and states opening back up. Economic growth may start to slow in the second half of the year and even more during next year. We should recognize that although we welcome the rapid growth of the economy, we will most likely have some bumps in the road ahead. During the second half of the year GDP will likely hit new highs, coming in much higher than the last half of last year. Overall things still look good as the states continue to open-up during the rest of the year and add their growing businesses to the economy.
So far this year we are seeing car and light truck sales rise at a good pace. Retail sales have gone up at a strong pace and seem to be recovering nicely so far. As Americans go back to normal activities such as shopping, recreation, restaurants, bars, etc. it will continue to increase business. So far, we feel the spending on goods and services has added over half to the current GDP numbers. We are seeing continued improvement in business investment, as the recovery continues to be led by investment in business equipment. Investment in intellectual property is picking up, as well as commercial construction is improving. Residential construction continues to grow, but not as fast as previous months, reflecting higher construction costs and less labor being available. Improvement and faster economic growth has brought an increase in the trade deficit caused by a faster recovery in the U.S. and Europe. Inventories have pulled back over the past few quarters due to businesses with supply-chains having issues causing them to dip into inventories to meet consumer demand. Lately, the inventories have shown some recent improvement. When you add it all up, we should continue to have an improving economy with an above average GDP through the rest of the year.
There has been nothing normal about the current economy. Our government has done unprecedented things over the past year. This has not been a normal business cycle. The contraction in the economy last year was not a normal recession. The return of growth over the past year has not been a normal recovery. Countries across the world shut down major parts of their economies and kept people from working. This caused major disruptions with supply chains and put businesses under much stress and the displacement of millions of workers. We still have worker shortages, many believe due to workers continuing to receive government funds, making it more attractive to stay home than go back to work. We believe much of that may be running out over the next few months and more people will be moving back into the workforce. We need to continue to monitor this new strain of Covid-19 (Delta Variant) and make sure it stays under control. We also need to keep an eye on inflation going forward. It all brings us to where we are today. Things have dramatically improved for most states. Spending is up and the economy is expanding due to the states opening and getting back to work. For now, we see continued reopening of businesses and states, easy money, low interest rates, and deficit spending pushing economic growth and profits up. Again, we need to keep our eye on the economy, but for now things still look positive going forward.
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Senior Portfolio Manager
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